Jump to content

Market update: DXY enjoys a September high


Recommended Posts

September is traditionally the best-performing month of the year for the US dollar index, the DXY, which has recorded an average gain of 1.44% over the past ten years.

 

original-size.webpSource: Bloomberg

 
 
 Tony Sycamore | Market Analyst, Australia | Publication date: Thursday 07 September 2023 

USD index regains lost ground

After its overnight rally, the DXY is already up 1.187% this September, having regained all the ground it lost into month end and more. The driver of US dollar gains this week has been more of the same: higher US yields and signs of a deepening slowdown in Europe and China, which sparked risk aversion, and weakness in the Japanese yen.

Starting with the former: US yields climbed overnight, following a hotter-than-expected ISM services purchasing managers' index (PMI) that contained worrying signs of pricing and employment pressures.

Defying market expectations for a fall to 52.4, the ISM services PMI rose to 54.5 in August from 52.7 in July, its highest reading since February. The prices paid sub-index increased to 58.9 from 56.8, and the employment component increased to 54.7 from 50.7.

In response to the ISM beat and hawkish comments from European Central Banke (ECB) official Klass Knot, who warned about the possibility of a rate hike from the ECB next week, US two-year yields closed 6bp higher at 5.02%, up 25bp from Friday's low. The probability of a 25bp rate hike in November, which we have flagged in recent weeks as being underpriced, is back up to 44%.

Turning to the slowdown in China and Europe, which continues to see their respective currencies marked lower against the greenback.

Earlier this week, a larger-than-expected drop in the Caixin Services PMI for August (51.8 vs. 53.6 expected) saw USD/CNY trade above the 7.3200 level for the first time in 10 months. A similar story in Europe. The final reading of the Euro Area composite PMI was lower than expected (46.7 vs. 47 expected), sending the EUR/USD test support at 1.0700 for the first time in three months.

Topping it all off for the US dollar index, USD/JPY rallied to a fresh cycle high of 147.87, its highest level in ten months, as yields on Japanese Government Bonds remain anchored around 0.65%, in contrast to the 4.29% on offer in US ten-year notes.

DXY technical analysis

During the first half of 2023, the US dollar index, the DXY, tested and held support at 101.00/80 on three separate occasions before punching lower post-Junes softer-than-expected US inflation data released in mid-July.

As highlighted since late July here, the swift rebound back above 101.00/80 left the mid-July 99.57 low, exposed as a false break lower. For followers of the Elliott Wave, viewed as Wave V low, following the completion of a five-wave impulsive sequence from the 114.78 September high, as viewed on the chart below.

The rally from the 99.57 low to last night’s 105.02 high now has the DXY pressing into overbought territory. Once the current period of DXY strength runs its course, a pullback towards 102.00 is likely into year-end.

However, before that, we can’t rule out the US dollar index, the DXY extending gains towards the March 105.88 high. Keep in mind that the 50% retracement of the five-wave decline from the October 114.78 high to the July 99.57 low is 107.20ish.

In summary, while the rally in the US dollar indexes overbought, we can’t rule out further US dollar strength in September before the big dollar commences a well-earned pullback.

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Link to comment
  • MongiIG changed the title to Market update: DXY enjoys a September high

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Bitcoin: Anticipated target lies within the 58-60 range before an impending correction. The upward trajectory is displaying signs of softening, prompting short-term traders to elevate their stop-loss levels. Bond Yields: The 10-year yields are poised to conclude wave v) of C of (B). This development is pivotal as it will uphold the strength of the Dollar DXY. Consequently, positions in gold or silver should be refrained from until yields and the Dollar reach their peaks. China's Influence: An intriguing facet of the market landscape revolves around China. I've been meticulously observing a substantial Elliott Wave Triangle pattern dating back to 2008, which now seems to have reached its culmination. This event is forecasted to bolster base metal prices, particularly once the Dollar and yields reach their zeniths. Crude Oil: Progressing steadily on its upward trajectory, crude oil is set for further ascension. Natural Gas: The recent uptick in natural gas prices is construed as a corrective rally, indicative of an impending shorting opportunity in the near future. Video Chapters 00:00 Bitcoin (BTC) 07:41 US Dollar Index, DXY / TLT Bonds. US Gov Bonds 10 Yr Yields 12:58 Precious Metals: Spot Gold XAU /GDX ETF / US Spot Silver XAG  16:37 Base Metals: Iron Ore, Copper XCU/USD. Uranium URA ETF / China 24:07 Energy: Crude Oil WTIOIL / Natural Gas NG 27:57 End Analyst Peter Mathers TradingLounge™ Australian Financial Services Licence - AFSL 317817 Source: tradinglounge. com  Join & Learn Elliott Wave from Experts Stay ahead of market movements and make informed decisions with our comprehensive analysis.  
    • The emergence of ICO and NFTs ushered in tokens as speculative assets. These were really attached with no use-cases beyond defi and collectibles. The next wave of tokenization seeks to bring forth experiences and token applications. These are set to be programmable and filled with user centric integration points. Smart tokens are set to usher in digital transformation, by bringing a paradigm shift from websites, to apps and to tokens. Tokenized services are set to transform user experience by rendering services where and when a consumer needs them. The core intent of the smart layer network is to bring real life use-cases to Web3, the project’s team firmly believes that, by infusing useable features into Web3 it will undoubtedly usher it mainstream. Critically looking at Smart Layer would expose that, after carefully and critically analyzing the existence of different token models, it is found that, there is truly no worthwhile use-case, thus the project seeks to curb the conundrum. In a bid to get a grasp of what smart tokens are, view it through the lens of how websites firstly started rendering digital services, then slowly evolving to apps. With Smart Layer, the focus is to empower tokens to do what websites and apps had hitherto done. The erstwhile services offered are set to be tokenized thus allowing them to be delivered when and where the consumer needs them and without requiring direct integrations. The Smart Layer Network native token $SLN is slated to be listed on bitget upon the satisfaction of certain criterion and prerequisite, deposit is however is currently opened. By depositing it on the CEX, the listing will be enabled and the token cast into further spotlight.  
×
×
  • Create New...
us